(What’s Left of) Our Economy: Are High Prices Starting to Cure Wholesale Inflation, Too?

Tags

consumer inflation, consumer price index, consumer prices, core inflation, core PPI, cost of living, CPI, energy, energy prices, inflation, living standards, PPI, Producer Price Index, productivity, recession, wholesale inflation, wholesale prices, {What's Left of) Our Economy

In Wednesday’s post, I wrote that I was somewhat surprised about the new (and somewhat encouraging) official U.S. data for consumer inflation in July because June’s figures for what’s often called wholesale inflation were so bad. Because when the prices businesses charge each other to turn out the goods and services they sell, they typically compensate by passing these higher costs on to consumers.

But I actually shouldn’t have found those latest Consumer Price Index (CPI) numbers so unexpected. As I’ve pointed out before (e.g., here) such higher costs can be passed along only if consumers go along. So I should have recognized the better (but still far from good) CPI results as a sign that consumers are starting to balk – by cutting back their spending to some extent.

And significantly, yesterday’s official Producer Price Index (PPI) results for July suggest that businesses themselves began protesting higher prices and cutting back on purchases of their own inputs. That is, they may represent another example backing the adage that the best cure for high prices is high prices. 

In fact, in all the important ways, the new figures for both “headline” producer inflation and its “core” counterpart (which strips out energy and food prices supposedly because they’re volatile for reasons having little at best to do with the economy’s fundamental vulnerability to inflation) strongly resembled those for consumer inflation.

Both the headline and core PPI indices barely rose sequentially (reflecting a bit of “price rebellion,” and worsened on annual bases at a pace that was the slowest in many months, but still alarmingly high in absolute terms. Further, as with the CPI, the big reason for this improvement was the drop in energy prices. And both annual CPI and PPI rates remain worrisome because they’re coming off results for the previous year that were also historically torrid.

One prime indicator of how dramatically energy has affected these results comes from the month-to-month headline PPI numbers.

By this measure, producer prices sank by 0.50 percent (yes, “sank” – didn’t just “rise more slowly”) in July– the first such drop since April, 2020 (1.27 percent) when the first wave of the CCP Virus was wreaking its maximum damage on the economy. And this milestone followed a June monthly increase of 1.01 percent. The percentage-point swing between these two figures (1.51) was the greatest on record (though to be fair, this data series only goes back to late 2009).

The evidence for energy’s leading role? The July sequential fall-off of 8.96 percent (the first such decline since last December’s 1.42 percent and the biggest since since the 16.85 percent nosedive in peak pandemic-y April, 2020) came on the heels of June’s 9.41 percent increase – the biggest since June, 2020’s 9.99 percent, as the economy was recovering rapidly from that first virus wave, related lockdowns and other mandated restrictions, and voluntarily reduced activity. In addition, the percentage-point swing of 18.37 was the biggest since the 18.40 shift between the April, 2020 energy price crash and the May, 2020 rebound.

As for core producer prices, they crept up by just 0.15 percent on month in July. That’s the smallest such increase since last December’s 0.17 percent increase. And they displayed little volatility, as the 15 percentage-point difference between June’s rise of 0.32 percent and July’s was exactly the same as that between the June advance and May’s of 0.47 percent.

The annual PPIs tell a similar story of energy price dominance.

Headline producer inflation was up 9.69 percent on a year-on-year basis in July – the lowest such increase since last October’s 8.90 percent. And percentage-point difference between the July annual decrease and June’s of 11.25 percent (1.56) was the biggest since producer prices strengthened by 0.36 percent on an annual basis in March, 2020, as the virus arrived in the United States in force, and then weakened by 1.44 percent in April (a 1.76 percentage point difference).

And once again, energy prices were the big driver.

In July, they jumped 27.59 percent year-on-year. But even that blazing pace was dwarfed by June’s 53.54 percent annual surge – the biggest on record (again, going back only to late 2009), and well ahead of the previous all-time high of 47.71 percent in April, 2021 (a figure strongly bolstered by the baseline effect, since in peak pandemic-y April, 2020, annual energy prices crashed by 30.20 percent.

The percentage-point gap between the June and July results were the widest ever, too – 25.95. The previous record was the 24.56 percentage point difference between that record 47.71 percent annual spurt increase in April, 2020 and the previous month’s rise of a relatively modest 23.15 percent. 

Since it doesn’t include energy prices, annual core PPI’s ups and downs – like those of monthly wholesale inflation – have been pretty tame in comparison.

The July increase of 5.75 percent was the best such performance since June, 2021’s 5.60 percent. And the annual rate of increase has now slowed for four straight months.

July’s annual core PPI rise was also an impressive 0.82 percentage points less than the June figure of 6.38 ercent. But that gap was only the biggest since May, 2020’s 0.62 percentage-point difference over the April results.

This relatively gradual drop in core PPI on a yearly basis (which RealityChek regulars know is a more reliable gauge of the trends in the monthly numbers because the longer timespan measured smooths out inevitably random short-term fluctuations) is the most compelling evidence that headline producer and consumer prices will remain worrisomely high for the foreseeable future.

This scenario isn’t inevitable. Maybe Americans can count on energy prices continuing to decline month-to-month long enough to bring annual inflation rates down in absolute terms. And maybe even they don’t, high energy prices won’t start boosting prices throughout the rest of the economy. But those developments can only be reasonably expected if consumer and business spending weakens enough to produce sluggish overall economic growth and even a recession.

Such a downturn is probably the price the nation has to pay to extinguish inflationary fires. The big problem is that, without a serious focus on reversing the long and possibly worsening U.S. slump in productivity growth, other than relief from the current cost of living crisis, the public – and especially the poorest Americans – probably won’t receive any major and solidly grounded living standards payoff from such a victory.

(What’s Left of) Our Economy: Tariffs-Led Consumer Inflation Grows…from Non-Existent to Slight

Tags

aluminum, Bureau of Labor Statistics, China, consumer price inflation, consumer prices, core inflation, inflation, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, tradewar, Trump, {What's Left of) Our Economy

After a several-month lapse, I finally had a chance to review in detail the latest batch of official U.S. consumer price data, which came out yesterday. The big takeaway seems as follows: Whereas through April there was no evidence that President Trump’s tariffs per se were pushing up consumer prices, now there’s some. But the evidence certainly doesn’t paint a picture of the American shopper’s living standards tumbling steeply because of Mr. Trump’s various trade wars.

As usual, let’s examine the metals-using industries, since the Trump tariffs on steel and aluminum have been in place for a relatively long period (April, 2018 was their first full month) and for reasons to be explained below, because it’s much easier to identify these sectors than those presumably impacted by the China tariffs.

The table below presents the relevant figures for major metals-using industries sequentially for the latest data month (June), since the duties’ onset, and year-on-year for the two latest data months. In addition, the results for control groups (like for overall core inflation, and for foods sometimes packaged in metal cans in their fresh forms):

                             May-June        Since April, 2018       y/y May           y/y June

core inflation:   +0.22 percent      +2.39 percent        +1.99 percent   +2.13 percent

fresh fruits         -1.67 percent      +0.31 percent        +1.85 percent   +0.87 percent

  & vegs:

fresh fruits:        -2.06 percent      -2.85 percent         -0.95 percent     -1.85 percent

fresh vegs:         -1.24 percent     +4.10 percent        +5.20 percent    +4.09 percent

processed          +0.39 percent     +1.61 percent        +1.28 percent    +1.70 percent

  fruits & vegs

canned fruits:     -0.38 percent     +4.47 percent        +4.04 percent    +3.93 percent

& vegs

canned fruits:     -0.09 percent     +2.11 percent        +1.00 percent    +2.02 percent

canned vegs:     +1.26 percent     +6.04 percent        +5.49 percent    +5.28 percent

soups:                +0.26 percent     +2.59 percent        +0.37 percent    +0.30 percent

malt bevgs          -0.62 percent     +1.77 percent        +0.84 percent    +1.84 percent

  at home:

alcoholic bevgs  +0.20 percent     +1.34 percent        +2.17 percent    +1.46 percent

  away from hom:

non-frozen, non- -0.21 percent     +1.96 percent        +3.09 percent    +3.03 percent

  carbonated non-

  alcoholic rinks

carbted drinks:     -1.95 percent    +3.33 percent        +5.75 percent    +2.71 percent

  juices & non-     -0.96 percent    +2.49 percent        +4.16 percent    +2.86 percent

  alcoholic drinks

new cars/trucks:  +0.17 percent    +1.13 percent        -1.61 percent    +0.74 percent

motor vehicle      +0.07 percent    +2.60 percent       +1.94 percent    +1.91 percent

  parts:

appliances:          +0.21 percent    +2.93 percent       +2.43 percent    +2.56 percent

major                   -1.40 percent    +3.95 percent        +3.80 percent    +2.94 percent

  appliances:

laundry                -0.70 percent    +4.00 percent        -1.55 percent      -3.98 percent

  equipment:

non-electric         +0.73 percent –   4.07 percent        -5.22 percent      -1.94 percent

  cookware & tableware:

tools, hardware,   +0.06 percent   +0.12 percent       +0.88 percent     +1.22 percent

  outdoor equipment:

The most revealing comparison is that between the post-tariffs (April, 2018) rate of core inflation (which excludes the historically volatile categories of food and energy) and the inflation rates for the metals-using sectors. And they show that for the 15 metals-using industries tracked, prices rose faster than core inflation in ten – a sign of tariff-led price-hiking.

At the same time, as previously noted, the figures for three of these 10 groups – soups, carbonated drinks, and juices and non-alcoholic drinks – need to be viewed cautiously, because their packages are hardly restricted to metals. Thus my conclusion that the tariff effects have been modest.

And another interesting conclusion emerging from these statistics: the price of laundry equipment is dropping dramatically after surging following the imposition in February, 2018 of a separate set of levies on large household clothes washers and driers. These prices are still way up (by 13.75 percent) since the tariffs began. But the May and June data show unusually rapid price drops. And these decreases are much greater than the slight reduction in these tariffs that began this year.

As for the China tariffs, definitive conclusions remain difficult to draw for several reasons. Chiefly, the first full data month for the relevant duties (for consumer products) is only last October. The goods on the U.S. Trade Representative’s list for those levies are categorized with a classification system different from that used by the Bureau of Labor Statistics in measuring inflation – so the match-ups are far from exact. And the scale of tariff price effects can differ dramatically from product to product because China’s presence in a particular market can vary so greatly.

Another complicating factor (though clearly trade war-related): Some of the China categories have also been affected by the metals tariffs (e.g., auto parts). Further, the appliance categories have been impacted by the separate household laundry equipment duties.

Nonetheless, here’s the China data for May-June, since last October, and year-on-year for this June and last June. As with the metals tariff table, they include figures for control categories like the core inflation rate:

                            May-June       Since Oct.    June y/y 2017-18     June y/y 2018-19

core inflation: +0.22 percent  +1.59 percent   +2.13 percent           +2.26 percent

food:                -0.02 percent   -0.12 percent   +1.43 percent           +1.91 percent

frozen/freeze-  -0.42 percent  +0.52 percent    -0.23 percent            -0.09 percent

  dried prepared foods:

fish/seafood:    -0.74 percent  +0.89 percent   +1.43 percent           +1.66 percent

processed fish/ -0.98 percent         0 percent   +0.39 percent            +2.13 percent

  seafood:

frozen fish/      -1.32 percent   -0.61 percent    -0.91 percent            +1.68 percent

  seafood:

fruits/vegs:      -1.24 percent   +0.03 percent   +0.25 percent             +1.04 percent

fresh fruits/    +1.67 percent    -0.63 percent   +0.62 percent             +0.87 percent

  vegetables:

fresh fruits:      -2.06 percent   -2.49 percent   +1.87 percent             -1.85 percent

fresh vegs:       -1.24 percent   +1.54 percent    -0.82 percent           +4.09 percent

processed        +0.39 percent   +2.49 percent    -1.04 percent           +1.70 percent

  fruits/vegs:

frozen fruits/   +1.84 percent   +0.54 percent    -3.88 percent           +0.24 percent

  vegetables:

non-carb/          -0.21 percent   +0.61 percent   -0.37 percent           +2.71 percent

  non-frozen juices/drinks:

personal care    -0.27 percent    -0.59 percent   -0.30 percent            -0.60 percent

  products:

household         -0.11 percent    +0.13 percent  -7.87 percent            -0.03 percent

  furnishings:

recreation         -0.34 percent     -2.49 percent   -8.22 percent           -5.60 percent

  goods:

men’s                -1.24 percent     -2.94 percent   -0.69 percent          +1.53 percent

  sportswear:

women’s           -2.01 percent     -1.25 percent   -1.33 percent           -0.03 percent

  sportswear

computers,        -1.91 percent    -4.09 percent    -3.70 percent          -5.86 percent

  peripherals, etc.:

window/floor    -1.19 percent    -5.03 percent   +0.43 percent          -2.75 percent

  coverings:

furniture &       +0.82 percent   +2.64 percent   +0.02 percent         +3.15 percent

  bedding:

appliances:       +0.21 percent     -0.37 percent  +1.15 percent         +2.56 percent

major                 -1.40 percent    +0.33 percent  +5.62 percent         +2.94 percent

  appliances:

laundry              -0.70 percent     -0.22 percent +13.12 percent         -3.98 percent

  equipment

misc                 +1.19 percent      -0.84 percent    -1.05 percent        +2.28 percent

  appliances:

non-electric      +0.73 percent      -2.78 percent    -2.64 percent         -1.94 percent

  cookware/tableware:

tools/                +0.06 percent     +1.27 percent    -0.74 percent          +1.06 percent

  hardware &

  outdoor equip:

household          -0.14 percent     +1.14 percent  +0.60 percent          +1.52 percent

  cleaning products:

televisions:        -1.23 percent    -14.25 percent  -19.09 percent        -19.65 percent

misc video         -1.98 percent      -1.19 percent    -2.53 percent          -2.17 percent

  equipment:

pets &               +0.08 percent     +2.72 percent   +0.67 percent         +2.84 percent

  pet products:

sporting           :+0.39 percent     +2.79 percent   +0.07 percent         + 0.66 percent

  goods:

photo equip       +0.24 percent     -2.04 percent    -6.29 percent          +2.72 percent

  & supplies:

sewing              +0.41 percent     +8.21 percent   +7.54 percent          +4.63 percent

  machines/

  fabrics:

motor               +0.14 percent      +2.09 percent   +0.29 percent          +1.91 percent

  vehicle parts:

tires:                 +0.15 percent     +2.09 percent     -1.56 percent          +2.03 percent

stationery/        +0.59 percent     +4.95 percent    +1.16 percent           -1.31 percent

  gift wrap:

Even given the above uncertainties, the bases for claims that the China levies are creating a tariff-mageddon for American consumers look awfully weak, though they’re not nonexistent. Chiefly, since the tariffs’ onset last October, only eight of the 30 affected products saw prices rising faster than core inflation.

At the same time, more product categories seem to be displaying such characteristics. This conclusion seems clear from the two sets of year-on-year statistics. Between June, 2017 and June, 2018, prices were stronger in only three of the 30 categories (including products for which prices were falling at a slower rate). Between the following Junes, their number grew to eight.

Similarly, forgetting about comparisons with the core, 23 of the 30 groups experienced higher inflation rates during the June, 2018-June, 2019 period (largely post-China tariffs) than during the June, 2017-June, 2018 period (entirely pre-China tariffs).

Of course, Mr. Trump’s trade policy, especially regarding China, has never been about economics alone. The administration has repeatedly emphasized that national security is at stake as well. But these new consumer price figures make clear that the economic costs paid by Americans have so far been meager. And especially with overall inflation so weak, they hardly look like reasons for the President to ease up on the trade front.

(What’s Left of) Our Economy: A Deep Dive Doesn’t Find Any Tariff-Led Consumer Inflation, Either

Tags

aluminum, China, consumer prices, inflation, Labor Department, metals, tariffs, Trade, {What's Left of) Our Economy

I decided to do something special for my regular analysis of the new U.S. consumer inflation figures (for February) and what they say about President Trump’s tariff-centric trade policies. Mainly because we now have four months worth of data on the prices of goods sectors where imports from China are common, it’s become possible to take the best stab yet determining whether the Trump levies are hammering American households by making these products much more expensive.

The verdict? Some tariffs-led inflation here can be detected, but the statistics are still too imperfect, and the time-frame examined still too short to justify any firm conclusions.

At the same time, it remains clear that Mr. Trump’s metals tariffs, which have now been in place for eleven data months, have had little if any impact per se on consumer buying power.

Let’s examine the steel- and aluminum-related figures first, since there are many fewer products involved. Here are the data for the January-February period, and for April to the present (the stretch during which the metals tariffs have been in place), as well as the year-on-year numbers for April and February (which provide some indication of trends over time). As usual, the results for tariffs-affected products (e.g., canned foods) are presented along with those of control goods (e.g., non-canned foods) to glean further insights into the tariffs’ effects.

But here’s another new wrinkle: Rather than use the most popular “core inflation” measure for the biggest control group, I’m going to use a different measure: all items minus energy. The reason? The standard core inflation gauge strips out food and energy, because price changes in those categories are so volatile that they’re thought to distort the picture of fundamental inflationary or deflationary forces influencing the economy.

Yet many metals tariffs-affected products are food products. So for our purposes, the core group needs to be more narrowly drawn – and in this case, is comprised of all items minus only energy.

                                       Jan.-Feb.        Since April       April y/y          Feb. y/y

core CPI:                   +0.15 percent   +1.76 percent  +2.01 percent   +2.07 percent

fresh fruits                 +0.72 percent   +1.95 percent   -0.43 percent   +2.34 percent

  & vegs:  

fresh fruits:                 -0.27 percent    -0.55 percent  +1.38 percent   -0.53 percent

fresh vegs:                 +1.86 percent   +4.92 percent   -2.50 percent  +5.76.percent

processed fruits         +1.42 percent   +0.11 percent   -1.29 percent  +0.88 percent

  & vegs:

canned fruits              +2.12 percent  +3.07 percent   -0.14 percent  +3.99 percent

  & vegs:

canned fruits:             +2.48 percent   +1.91 percent    -1.60 percent  +3.09 percent

canned vegs:              +2.23 percent   +3.70 percent   +1.00 percent  +4.66 percent

soups:                         +0.39 percent  +1.19 percent     -0.38 percent   -0.57 percent

malt beverages           +0.73 percent  +2.41 percent    +0.84 percent  +2.64 percent

  consumed at home:

alcoholic                     -0.26 percent   +1.14 percent   +2.17 percent   +1.36 percent

   beverages consumed away:

non-frozen, non-        +0.98 percent   +3.46 percent   -0.52 percent   +3.52 percent

  -carbonated non-

  alcoholic rinks:

carbonated drinks:      -0.19 percent   +4.72 percent   +0.04 percent   +5.04 percent

juices & non-             +0.98 percent   +3.46 percent    -0.26 percent   +3.52 percent

  alcoholic drinks:

new cars & trucks:     -0.24 percent    +0.66 percent   -1.61 percent   +0.29 percent

motor vehicle             -0.09 percent    +1.83 percent   -0.74 percent   +2.12 percent

  parts:

appliances:                 -0.94 percent   +3.44 percent  +0.27 percent    +6.80 percent

major appliances:       -0.56 percent   +6.86 percent  +1.55 percent  +11.08 percent

non-electric               +0.25 percent    -0.59 percent   -1.57 percent    +1.69 percent

  cookware & tableware:

tools, hardware,         +0.72 percent  +1.49 percent   +0.19 percent   +1.98 percent

outdoor equipment:

Something that becomes clear right away – the food price changes shown here demonstrate that they really are volatile. For example, from January to February, fresh fruits and vegetables prices together rose by 0.72 percent. The previous month, they fell 0.19 percent. Fresh vegetables prices have been on an even wilder roller-coaster – up 1.86 percent on month in February, down 1.66 percent on month in January. And unfortunately, this volatility can reduce the value of the year-on-year results.

The canned foods price volatility is impressive, too. Between January and February, the prices in the canned fruits, canned vegetables, and canned produce overall categories all rose more than two percent. But between December and January, the price of the first of these fell by 1.59 percent, the price of the second rose by just 0.45 percent, and the price of the third dipped by 0.05 percent.

And these products are where the strongest signs of metal tariffs-led consumer price inflation are found. So take the price acceleration revealed by the year-on-year data with a grain of salt. (No pun intended.). Also revealing: When you look at the cumulative price changes since the first metals tariffs were imposed (the post-April figures), some of these canned food categories exhibit stronger-than-core inflationary trends (the canned produce groupings and the drinks categories – which unfortunately also include many products packaged in glass and plastic bottles and cardboard containers) but some exhibit weaker pricing (like soups and alcoholic beverages consumed away from home – which also include many non-canned products). So there’s also abundant evidence that prices are mainly driven by something other than the metals in cans.

As for other products that use steel and aluminum, appliance prices keep increasing ever faster – but of course inflation in those categories has also been influenced by a separate set of tariffs imposed a year ago on large household laundry machines. The pricing trends for motor vehicles, automotive parts, non-electric cookware and tableware, and the tools and hardware categories, are decidedly mixed – which again undercuts tariff-centric interpretations of their inflation rates.

And now for the China tariffs’ effects. In part this post has been delayed because I actually went through the list of tariff-ed consumer (and other) goods published by the U.S. Trade Representative’s office in mid-September. The groupings of these products still often match up poorly with the groupings used by the Labor Department to track consumer pricing trends. Moreover, in many of these cases (especially the food products), imports from China are pretty modest. But the groupings aren’t entirely off, so I concluded these numbers are worth presenting.

What you see are the data for the latest month (February), for the post-September period (since October was the first full month these levies were in effect), and for October and February on a year-on-year basis. And as with the metals tariffs figures, the main control groups (like items minus energy) are presented as well.

                                     Jan.-Feb.          Since Oct.         Oct. y/y           Feb. y/y

core CPIU:              +0.15 percent   +1.76 percent   +2.01 percent   +2.07 percent

food:                        +0.40 percent   +1.17 percent   +1.21 percent   +1.96 percent

frozen/freeze-          +1.56 percent   +0.47 percent    -0.46 percent   +0.95 percent

  dried/prepared

  foods

fish/seafood:            +0.79 percent   +1.85 percent   +2.82 percent   +4.44 percent

processed fish/         +0.41 percent   +0.92 percent   +1.46 percent   +5.21 percent

  seafood

frozen fish/              +0.78 percent   +1.24 percent    -0.15 percent    +3.67 percent

  seafood

fruits/vegs:               +0.86 percent   +1.83 percent    -0.32 percent   +2.03 percent

fresh fruits/               +0.72 percent   +2.11 percent   -0.38 percent    +2.34 percent

  vegetables

fresh fruits:                -0.27 percent   +1.29 percent   -1.40 percent    -0.53 percent

fresh vegs:                +1.86 percent   +3.05 percent   +0.81 percent   +5.76 percent

processed                  +1.42 percent   +0.79 percent   -0.06 percent   +0.88 percent

  fruits/vegs:

frozen fruits/             +0.81 percent   -0.51 percent    -2.72 percent    -2.41 percent

  vegetables

non-carb,                  +0.98 percent   +2.06 percent   +1.23 percent   +3.52 percent

  non-frozen juices/drinks:

personal care            +0.55 percent   +0.91 percent    +1.52 percent   +1.87 percent

  products:

household                +0.31 percent    +0.78 percent    +0.69 percent   +1.49 percent

  furnishings:

recreation                 -0.86 percent    +0.53 percent     -3.51 percent    -1.38 percent

  goods:

men’s                       +3.27 percent     -1.52 percent    +1.47 percent   +4.10 percent

  sportswear:

women’s                   -2.51 percent     -2.47 percent     -5.08 percent   -5.91 percent

  sportswear:

computers,                -0.94 percent    -1.70 percent     -4.09 percent    -3.95 percent

  peripherals, etc.:

window/floor            -1.97 percent    -2.39 percent    +0.74 percent    -3.53 percent

  coverings:

furniture &               +1.20 percent   +1.22 percent    +1.26 percent   +2.36 percent

  bedding:

appliances:                -0.94 percent    +0.17 percent   +4.82 percent    +6.36 percent

major                         -0.56 percent    +1.83 percent  +8.08 percent  +11.03 percent

  appliances:

misc appls:                -0.85 percent     -1.04 percent  +3.25 percent    +4.38 percent

non-electric              +0.25 percent    +0.27 percent   -0.51 percent    +1.69 percent

  cookware/tableware:

tools/                        +0.72 percent     +1.91 percent  +0.39 percent    +1.98 percent

  hardware &

  outdoor equip:

household                 +0.13 percent    +0.41 percent  +1.79 percent    +2.94 percent

  cleaning products:

televisions:                 -3.23 percent   -7.01 percent  -17.95 percent   -20.18 percent

misc video                 +0.71 percent  +4.45 percent    -3.87 percent    +1.53 percent

  equipment

pets &                       +0.55 percent   +1.50 percent   +0.91 percent   +2.84 percent

  pet products

sporting                     -1.90 percent    +2.02 percent   +1.71 percent   +0.30 percent

  goods

photo equip               -2.26 percent     -1.24 percent    -4.94 percent    -4.12 percent

  & supplies

sewing                      +1.82 percent    +9.76 percent    -2.08 percent   +6.10 percent

  machines/

  fabrics

motor vehicle            -0.09 percent    +1.03 percent   +1.25 percent   +1.86 percent

  parts:

tires:                         +0.25 percent     +1.66 percent   +0.03 percent   +0.91 percent

stationery/                +1.60 percent     +4.24 percent    -6.48 percent    -0.22 percent

  gift wrap

Again, the short duration of these tariffs means that even the post-October and year-on-year results should be treated with major caution. And the prevalence of faster-rising food prices is clear from the table as well (although the modest level of tariff-ed imports from China further undermines the claim that trade deserves significant blame). Another complication that explains many of the diverging metals-related results, too: Different products operate in very different markets with highly distinctive features – including demand. Just look at the sportswear categories – where by most measures, pricing for men’s products is moving in exactly the opposite direction as pricing for women’s products.

The bottom line seems to be that, for price changes starting in October, only five of these 23 categories show increases above the core inflation rate, while 18 show below it. And one of those high inflation products was the major appliance category that’s also been affected by the washing machine tariffs.

Yet for year-on-year inflation rates, between October and February, the story looks very different. Price rises sped up (or price drops slowed down) in 18 of the categories, with greater price weakening characterizing the other five.

That’s why I believe that it’s still most responsible to adopt a wait-and-see approach to evaluating the China tariffs – along with the short time frame involved and the uncertainties over categorization. For the impact of the longer-lasting metals tariffs, however, claims of trade war-wreaked devastation just look even more and more far-fetched with each passing month.

(What’s Left of) Our Economy: Yes, We (Still) Have No Tariffs-Led Inflation

Tags

China, consumer price index, consumer prices, inflation, metals tariffs, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

As with yesterday’s producer price data, good luck to anyone trying to find significant tariff-led inflation in the U.S. economy in today’s consumer price numbers (for November), whether on the metals front or the China front. Because it’s still not showing up. There’s one clear exception (household laundry machines), which has been hit with its own product-specific levy since early February, but where doubts still persist about whether the resulting pricing power can stick. Some inflation is also apparent in motor vehicle parts.

Here’s the raw data, first for metals-using consumer goods where – bizarrely – powerful inflationary pressure are already being reported. For comparison’s sake, I’ve also included the statistics for overall “core” inflation (“core CPIU” in government lingo), which strips out volatile food, energy, and housing prices. And for fruits and vegetables, I’ve presented the numbers for these products in their canned and un-canned processed forms, to reveal whether the prices for the steel and aluminum cans in which the former come are driving price trends, or whether other factors have been more important.

                                Oct.-Nov.       Since April        y/y April           y/y Nov

core CPIU             0.14 percent   +0.77 percent  +1.19 percent   +1.51 percent

processed fruits    -0.31 percent   -1.30 percent   -0.36 percent    -0.22 percent

& vegs

canned fruits         -0.42 percent   -0.48 percent   -0.07 percent   +0.69 percent

 & vegs

canned fruits         -0.07 percent   -0.05 percent   -1.52 percent   +0.67 percent

malt beverages     +0.30 percent  +1.78 percent  +0.84 percent   +1.61 percent  

 at home 

alcoholic               +0.25 percent  +1.38 percent  +2.17 percent   +2.60 percent

  beverages away

juices & non-         0.45 percent   +1.64 percent    -0.25 percent   +1.73 percent

-alcoholic drinks

non-frozen, non-    -0.27 percent  +1.19 percent    -0.53 percent   +0.79 percent

  carbonated non-

  alcoholic drinks

non-alcoholic         -0.02 percent  +2.72 percent   +0.03 percent   +3.04 percent

  carbonated drinks

new cars & trucks -0.01 percent   +0.77 percent    -1.62 percent    -0.29 percent

motor vehicle       +0.35 percent   +1.15 percent    -0.74 percent    +2.13 percent

  parts 

The main conclusions emerging from this first table? Between October and November, prices have been weaker than the overall core inflation rate for some products (canned fruits and vegetables, new motor vehicles, and three non-alcoholic drinks categories) and stronger in fewer products (beer and other malt drinks consumed at home, alcoholic beverages consumed in bars and restaurants, and motor vehicle parts). That development alone strongly indicates that metals prices are only one influence on the prices of metals-using products, and likely not the main influence.

Further evidence for the relatively low importance of metals prices, and therefore tariffs? Over the latest data month, prices for canned fruits and vegetables have fallen slightly faster than those for all processed fruits and vegetables, but prices for canned fruits have fallen more slowly. So it’s hard justify foisting lots of blame on the cans.

In addition, care is needed in interpreting all the drink statistics. In the first place, as noted in previous RealityChek posts on consumer prices, the beer and non-alcoholic drinks figures don’t distinguish between products sold in bottles from products sold in cans. And the alcoholic beverages numbers don’t even distinguish among beer, wine, and spirits, on top of combining canned products numbers with the results for products sold in bottles and other kinds of containers (although not much wine and spirits seems to come in cans).

A major spread also emerges from the numbers since April – the first full month when any metals tariffs had been imposed. The price increase for automotive parts is relatively strong, and the hikes for all drink categories are especially robust. These indicate that demand for drinks of all kinds has been up significantly during this period, but the data are complicated again by the failure to distinguish drinks sold in cans and in other packages. And most of these trends are clear and complications are clear from the two year-on-year statistics.

Less information about the impact of China tariffs can be gleaned from the new consumer price report, because the first of these levies was only imposed in early July, and most of these were slapped on producer, not consumer goods. But some of these products contain a great deal of producer goods like steel or electronic components, and the figures for two of them are presented below – including the latest monthly results, the price changes since July, and the July and latest year-on-year data. And tariff-led inflation of any kind…just isn’t.

                              Oct.-Nov          Since July          July y/y            Nov y/y

core CPIU         +0.14 percent    +0.34 percent  +1.48 percent    +1.51 percent

tools, hardware  -0.24 percent     -0.31 percent   -0.07 percent     -0.12 percent

  et al

video/audio       +0.14 percent    +1.06 percent   -0.79 percent     -0.38 percent           equipment

But there is one product for which tariff-induced price hikes are clear, and that’s those separately tariff-ed household laundry machines. Here are the data for October-November, since February (shortly after they began, and year-on-year for February and November.

                                    Oct.-Nov.       Since Feb            Feb y/y            Nov y/y

core CPIU               +0.14 percent  +0.74 percent   +0.91 percent   +1.51 percent

laundry equipment +2.97 percent +18.25 percent    -7.61 percent  +15.52 percent

Of course, the steel levies have no doubt contributed to the elevated prices, too. Even here, though, it’s interesting that despite a big October-November price jump, the year-on-year increase in November prices is somewhat lower than that for February. Also, even with the big new monthly surge, washing machine prices remain at four-and-a-half-year lows. In other words, as with steel and aluminum, these goods were flooding the U.S. market and sold at prices having little to do with any free market forces, much less free trade.

(What’s Left of) Our Economy: Still Desperately Seeking Tariff-Induced Inflation

Tags

aluminum, China, consumer prices, inflation, metals tariffs, producer prices, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

There’s especially bad news for trade war alarmists contained in this morning’s government report on producer prices. Not only does it contain yet more evidence that any inflation from President Trump’s metals tariffs keeps fading, but it’s now possible to show that his China tariffs aren’t fueling price hikes that are noteworthy, either – let alone increases likely to last.

Regarding the levies on steel and aluminum, which began to be imposed in late March, the weakest pricing trends have been apparent in aluminum. In April, its year-on-year price increases at the wholesale level stood at 11.9 percent, peaked at twenty percent in June, and as of November (the latest data reported this morning), the rate was down to 5.9 percent. That’s largely because wholesale aluminum prices have dropped on a monthly basis for five straight months, including by 1.5 percent from October to November.

More pricing power has been demonstrated in steel. Year-on-year wholesale prices for this metal advanced by 7.4 percent in April and have continued upward since, though at a much slower pace since August’s 18.6 percent. In November, the annual increase was 19.8 percent.

On a monthly basis since August, steel prices have dipped on net, even though between October and November, they increased by 0.5 percent.

Importantly, these higher metals prices don’t seem to be transferring uniformly into higher prices for metals-heavy products, including parts and components. For example, some mounting price pressure is apparent in pumps, compressors, and equipment; and mining machinery and equipment. But these sectors were greatly outnumbered by those in which price momentum seemed weak at best and going nowhere – such as construction machinery; machine tools; oil field and gas field machinery; aircraft; and motor vehicles and parts.

And if the price increases aren’t at least roughly comparable, then it’s hard to justify singling out tariffs as a major problem to this point.

The Trump China tariffs began in early July, but evidence that they’re igniting much inflation is even more elusive. On the one hand, it’s true that China’s currency is down versus the U.S. dollar since July – by a little over four percent – which all else equal will depress the prices of Chinese-made goods and services versus their American competitors all over the world. On the other, that’s a sign that, when it comes to China, many special variables influence prices (like a wide range of subsidies), along with the usual supply and demand forces.

Most important, here are the wholesale price changes for some leading products on the Trump administration’s list of the first 818 imports from China slapped with tariffs on July 6. So they represent the changes from July through November.

aircraft engines and engine parts:                                  0.35 percent

industrial heating equipment:                                       0.89 percent

oil and gas drilling platform parts:                               0.46 percent

farm machinery and equipment:                                   2.08 percent

paper-making machinery:                                            0.54 percent

ball bearings:                                                                1.12 percent

electric generators:                                                      1.71 percent

electricity transformers:                                              0.35 percent

medical equipment incl X-rays, pacemakers:                  0 percent

Three arguably major price spikes are apparent, but the big question remains whether these increases will stick. We’ll be watching.

Finally, there are the washing machine tariffs. As previously noted, at the retail level, prices of these appliances shot up shortly after they were first imposed in late January – to the unmistakable glee of supporters of the pre-Trump trade policy status quo. But at the wholesale level, home appliance prices (washing machines aren’t broken out from this category) have climbed only 0.76 percent from February through November. And during the last two months, they’ve fallen by 0.7 percent and 0.6 percent sequentially. So good luck with claiming that levies at the border deserve blame for whatever higher prices were paid by American consumers who had the misfortune to buy washing machines earlier this year.

As for the November consumer price data (measuring changes at the retail level), the data don’t come out until tomorrow. But on a monthly basis, they fell by 0.2 percent from July to August and by 3.8 percent between August and September before recovering by 0.2 percent between September and October.

In other words, there’s been deflation in washing machine prices lately. As these and the wholesale price figures make clear, that continues to be a fate richly deserved to date by tariff-led inflation claims.

(What’s Left of) Our Economy: Productivity-Challenged U.S. Manufacturers Want Their Cheap Foreign Metals Crutch Back

Tags

aluminum, Canada, China, consumer prices, inflation, manufacturing, metals tariffs, Mexico, overcapacity, producer prices, productivity, quotas, steel, tariffs, total factor productivity, Trade, Trump, {What's Left of) Our Economy

Anyone genuinely concerned with the long-term health of the American economy and its manufacturing sector in particular should be thankful for the letter sent Monday to the Trump administration by 33 business organizations asking for removal of the tariffs imposed earlier this year on steel and aluminum imports from Mexico and Canada.

For the letter – signed by groups from many sectors of the economy but principally by manufacturing organizations – unwittingly reveals the extent to which American industry has become addicted to supplies of metals whose prices have been artificially cheapened mainly by a global glut still primarily fed by subsidized over-supply from China. As a result, the letter also suggests a reason why American manufacturing productivity growth has been so lousy lately – in the process undermining the economy’s ability to generate lasting, as opposed to bubbly, prosperity.

To begin with, however, the signers’ leading claim is demonstrably, and whoppingly, false. They contend that the metals tariffs have caused significant harm to American manufacturers, consumers and workers. They have raised costs significantly for a wide array of industries….” Yet as I have repeatedly shown, (most recently here) since the levies began to be imposed, at the end of March, nothing in the official data on domestic manufacturing’s performance points to any harm whatever. In fact, in most respects, recent months have actually seen out-performance by metals-using industries – which logically should be where the greatest problems stemming from metals tariffs are concentrated.

Especially false is the insistence that because “Many manufacturing industries rely on imported inputs to produce goods competitively in the United States,” the tariffs “raise the costs of manufacturing in the U.S. and place our manufacturers at a competitive disadvantage with respect to finished products which are made outside of the U.S. and imported without being affected by the tariffs.  Further, consumers are starting to feel the pinch of higher prices across the board, as evidenced by recent increases in the CPI [Consumer Price Index].”

Indeed, this contention has been borne out neither by the consumer price numbers nor the producer price statistics.

But an examination of steel import figures and productivity performance suggests the real motive of the manufacturing signers in particular: They hope to resume relying on cheap foreign government-subsidized foreign metals for their growth and profits, rather than the kinds of productivity improvements that will do the most to strengthen both their bottom lines and the entire economy’s foundations over any significant time span.

The evidence comes from comparing total U.S. steel imports on the one hand, and total factor productivity (the broadest of the two main measures of efficiency tracked by the Labor Department) for the main metals-using industries on the other, during the previous and current American economic recoveries (the best way to generate apples-to-apples results).

That previous recovery officially lasted from late 2001 to late 2007, and through 2006, measured by quantity, steel imports increased by nearly 28 percent – largely fueled by a purchases from China that jumped more than 260 percent. (As the impact of the housing bubble’s bursting spread throughout the economy, steel imports from China and the rest of the world fell sharply before the recession’s official onset in the fourth quarter of 2007.)

And here are the total factor productivity increases for that 2001-2006 period for the American private sector for a whole, manufacturing overall, the metals industries themselves, and the key metals-using sectors:

private sector:                                      +9.19 percent

manufacturing:                                  +13.55 percent

durable goods manufacturing:          +19.44 percent

primary metals:                                   +5.72 percent

fabricated metals products:                 +6.35 percent

non-electrical machinery:                  +11.01 percent

transportation equipment:                 +13.38 percent

The figures for the current recovery look markedly different. Let’s examine the results from its 2009 start through 2016 (the year for the latest available detailed total factor productivity statistics). During that period, total national steel imports soared by just under 104 percent by quantity. Purchases from China sank like a stone (by more than 63 percent) between 2015 and 2016, because of China-specific anti-dumping tariffs. But clearly many other countries and their subsidized steel sectors picked up the slack, because total U.S. imports dropped off by only 17.31 percent. And continuing Chinese over-production kept exerting downward pressures on prices worldwide.

And how did total factor productivity fare during that big steel import run-up?

private sector:                                      +5.93 percent

manufacturing:                                     -4.48 percent

durable goods manufacturing:            +1.24 percent

primary metals:                                   +5.76 percent

fabricated metals products:                  -7.68 percent

non-electrical machinery:                     -7.08 percent

transportation equipment:                    +9.67 percent

That is, as artificially cheap foreign steel poured into the U.S economy, total factor productivity growth in most of the chief metals-using sectors shifted into reverse – and by startling extents. The only exceptions were transport equipment and durable goods as a whole, with the former clearly holding up the latter. And even in both these cases, total factor productivity growth slowed dramatically.

True, the letter’s signatories claim that they support continued tariffs on steel and aluminum imports from China – the main overcapacity and over-production culprit. They also say they back “negotiation of global arrangements to deal with overcapacity.”

But this position looks phony given their opposition to import quotas for steel from countries where tariffs have been lifted (South Korea, Brazil, and Argentina) because these measures allegedly have “placed severe supply constraints on U.S. manufacturers and created even more business uncertainly than tariffs regarding exports from these countries.” In other words, the signatories are opposed to the very policies that have helped ensure that all other metals-producing countries don’t simply keep transshipping China’s over-production into the U.S. market, or respond to China’s glutting their steel market by ramping up their own exports to the United States.

So the real message being sent by the manufacturers’ metals tariffs letter couldn’t be clearer: “We want to regain access to that artificially cheap foreign steel, regardless of its impact on the entire economy’s future.” Arguably, that’s an appropriate, or at least understandable, priority for companies viewing their prime obligation as maximizing shareholder value at any given moment. But just as understandably, it’s the type of priority that America’s political leaders should emphatically reject.

(What’s Left of) Our Economy: What John Oliver Didn’t Tell You About Trade – or About RealityChek

Tags

"Last Week Tonight, BMW, bubble decade, China, consumer prices, domestic content, Financial Crisis, Global Imbalances, Jobs, John Oliver, manufacturing, Peter Navarro, productivity, tariffs, Trade, Trade Deficits, Trump, wages, {What's Left of) Our Economy

In his segment last night on President Trump’s trade policy, HBO Will Rogers wannabe John Oliver had some good fun at my expense due to a technical glitch here on RealityChek, and I deserved it. In the course of making the case why Mr. Trump’s tariff-centered approach is dangerous economic Know-nothing-ism, the (profanity-philic) comedian argued that the President’s main trade adviser, Peter Navarro, once cited me as one of only two economists that agree with his views on the harm of trade deficits – and then correctly pointed out that I told an inquiring journalist soon after that I don’t hold an economics degree. (I recounted these events in this post.)

Oliver proceeded to go on to suggest that I don’t hold a degree in website design, either (and maybe nothing else?), spotlighting the RealityChek bio section where my portrait hasn’t been rotated correctly. And to that I plead “guilty.” I’m a stubborn techno-phobe and have never managed to figure out how to present the photo rightside up. But first impressions are important, and I should have somehow taken care of it. So my bad.

Oliver deserves credit on two other counts as well. First, he acknowledges that trade policy is complicated, and that unfettered trade can have major downsides. Indeed, he even specifies that for trade’s overall net gains to be realized, it needs to be “done right,” and that valid grounds exist for complaints about China’s trade policies in particular. Second, he asked one of his producers to check whether or not I still lack an economics degree.

But what’s also noteworthy (and not so commendable) about that instance of meticulousness is that, although this producer and I wound up having a fairly lengthy conversation about trade policy, my only “contribution” to the show was strengthening Oliver’s attack on Navarro. And that’s really too bad for anyone seeking genuinely to understand the pros and cons, and ins and outs of trade policy. Because had Oliver and his staff gone beyond my bio page, here’s some of what they would have found:

>Despite Oliver’s claim that tariffs are to be avoided in large part because they make goods for consumers and producers who use the tariff-ed products more expensive, there’s little evidence that, in today’s U.S. economy, many producers have the pricing power to pull this feat off. For that, you can thank a combination of the lingering impact of the last financial crisis and ensuing Great Recession (which resulted in part from American leaders ignoring the huge, trade-centered global imbalances that were building up during the bubble decade). And let’s not forget the longer-lasting wage stagnation that’s afflicted so much of the American labor force (which can also be blamed in part on trade policies that have exposed this workforce to penny-wage foreign competition and/or predatory practices by low- and high-wage foreign competitors alike).

>Although Oliver contends that Trump-like concerns about trade policy’s impact on U.S. domestic manufacturing overlook how much larger American industry is today than in 1984, during the current economic recovery, after-inflation manufacturing output has yet to regain its pre-recession production levels. And perhaps not so coincidentally, all the while, the manufacturing trade deficit has surged to the point where it’s likely to hit $1 trillion this year (in pre-inflation dollars). In other words, that’s a lot of American demand for manufactured products that was supplied from foreign economies rather than from the U.S. economy. 

>Oliver accepts as gospel the view that manufacturing’s recent employment losses are due mainly to the sector’s productivity gains, not to failed U.S. trade policies. But industry’s productivity performance has been so poor for so long that it’s lost its historic role as the country’s labor productivity growth leader. Further, it’s anything but difficult to find highly credentialed economists who finger inadequately dealt-with foreign competition instead.

>Oliver makes much of how Mr. Trump’s tariffs on steel and aluminum will cost many more jobs than they save or create by observing that they will harm metals-using industries – which employ many more Americans than the metals producers. Yet since the metals tariffs began to be imposed, these sectors have experienced growth and employment gains at least as strong as those of the rest of manufacturing.

>Like so many journalists, Oliver describes BMW as an American manufacturing gem because it builds so many of its vehicles in South Carolina – and an example of how the Trump trade approach simplistically assumes that domestic and foreign companies can be easily distinguished. Like many journalists, however, Oliver ignores readily available U.S. government data making clear that BMW in the United States mainly snaps together foreign-produced parts and components, and therefore adds relatively little value to the American economy.

>According to Oliver, Trump’s metals tariffs are also boneheaded because they are “pissing off the leaders of every other country on earth” and therefore sandbagging any hope of prevailing in trade diplomacy against the world’s main metals trade bad guy, China. Too bad he never mentioned that, as China’s metals glut ballooned, the United States emerged as far and away the world’s metals dumping ground of last resort because other metals-producing countries responded to Chinese pressure on their own industries either by transshipping Chinese metals, or stepping up their own exports to the United States to compensate. I.e., a global problem required a global response. P.S.: The world’s leading economies have been vowing to work on multilateral responses to China’s overcapacity for nearly two years, and have produced exactly nothing in the way of concrete results.

>Most disappointing, I asked Oliver’s fact-checker why her boss puts so much stock in economists’ views when nearly all of them (including those so confident in orthodox trade theories and their policy implications) clearly flunked the biggest test they’d faced in decades: warning that the economy of the previous decade was an immense bubble whose bursting would bring disaster. Or figuring out that anything was fundamentally wrong with the American economy in those years. Her response: Many of them did – which will come as a major surprise to anyone in the mid-2000s who owned a home or a share of stock.

There’s more, but let’s close with this irony: Even though Oliver made much of China’s decision to impose some retaliatory tariff on U.S. goods, in contrast to a Navarro prediction, a team of high level Chinese negotiators will arrive in Washington, D.C. in a few days to try and end a trade confrontation that has hammered their country’s stock markets and currency, and that, according to numerous reports, has President Xi Jinping worried that he’s overplayed China’s economic hand. Any chance that any of this upcoming highlight of this week’s news will be reported on the next edition of “Last Week Tonight”?